Tag Archives | variable rate mortgages

Should I fix my mortgage rate now?

ECB interest rates have dropped to a historic low of 1% as of this week. Anyone on a tracker or variable rate mortgage will have benefitted to the tune of up to €500 or €600 a month in reduced mortgage repayments.

With these low rates, is it time to lock in your mortgage rate now to benefit from lower rates in the longer term? This would insulate you against any interest rate rises in the coming years – your payments would be unchanged no matter what the ECB does.

The newspapers and airwaves are currently full of commentators telling us that given that rates “will never be so low” we should think about fixing our mortgage rates now. But remember, some of these commentators are the people who told us back in March 2007:

HOUSEHOLDERS struggling to cope with rising mortgage repayments face further crippling interest rate hikes. The spectre of further increases comes as new figures show that house-price growth has ground to a shuddering halt. Financial analysts predict that European Central Bank rates will rise to 4pc in June. That would leave borrowing costs at double the level of 18 months ago, knocking tens of thousands of euro off the prices first-time buyers can pay. But some economists think 4pc will not be the peak, after news that money supply grew at the fastest rate in 17 years in the 13 countries which share the euro.

Rates didn’t go much above 4% after that, and have fallen steadily since.

The point I’m trying to get across is that what you do now is dependent on so many outside factors that it’s almost a pure gamble on what to do now.

And therefore, coming to a decision now is pretty much exactly the same situation that people were in back in 2006 and 2007 when they read and listened to all the commentary out there and decided to fix their mortgages for 3 or 5 years, and who are now complaining about the fact that they’re not getting the benefits of falling interest rates.

So what of the advice to fix now? Well, if you fix now, you’ll pay a little more now for the privilege of getting a fixed rate, but if interest rates go up, you’ll eventually begin to benefit since you’re repayments won’t increase.

But what if the recession lasts longer than anyone expects – given that it’s arrived when many “experts” didn’t expect it at all, and others didn’t expect it to be as harsh as it is. What if the ECB needs to keep rates at 1% for a significant period of time? What if they found that they had to drop rates even further, to 0.75% or 0.5%? In these situations, you’ll end up paying more in your repayments than you are now, and you’ll end up bleating about being caught in a fixed rate mortgage the same as many are at the moment.

Your mortgage is anything from €100,000 to €500,000 or even more. Making any decisions now based on what people are saying on the radio or writing the newspapers, as has been shown in the past, is a complete lottery.

Think long and hard about what you want to do. Speak to some independent professionals. Consider your personal monetary situation and how much you’re paying now versus what you can afford to pay in the future and how that would look if rates when up, went down, or stayed the same and if your income changed dramatically up, or more likely down.

Then make your decision. And when you do, if it doesn’t go the way you like, remember that there’s only one person to blame if it doesn’t go the way you want or expect. You!

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Mortgage rate drops again – where’s your extra cash?

This week saw the ECB rate drop again. Falling by 0.25%, it’s now at its lowest level ever at 1% only.

If you’re on a fixed rate mortgage, you can stop reading now. Sorry, but you won’t enjoy this at all.

Home owners on tracker mortgages and most variable rate mortgages will now be anything from €300 to €500 per month better off because of the drop in mortgage repayments.

So, since rates started falling 7 months ago, you will have saved anything between €2000 and €4000 in total.

What have you done with that money?

Still have it? Tucked away in a savings account for a rainy day? Or spent without really noticing?

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Mortgage interest relief removed after 7 years

Talking to my dad over the weekend gone by, we were discussing the impact of the most recent budget on ourselves personally. There wasn’t anything good we could say between us unfortunately.

One item that did come up however, that doesn’t have an impact on either of us, was the removal of mortgage interest relief from those with mortgages for more than 7 years.

He felt that this was an extremely unfair measure and was surprised that it hadn’t received very much coverage in the budget aftermath – unlike the budget unrelated coverage of the fixed rate mortgage bail-out campaign.

On the other hand, I didn’t feel that it should be that much of an issue. My view would be that after 7 years, most mortgage holders will have been working long enough to be able to withstand such an increase in their expenses.

If mortgage interest relief was a means to aid first time buyers to afford their homes, then there is no need for the government to be involved in part-paying the mortgage repayments of the whole country – particularly those that are no longer first time buyers.

Combining the two current mortgage issues (fixed rate mortgages and mortgage relief after 7 years), there could be cause to review the potential difficulties of mortgage holders who, 7 years ago, took out a fixed rate mortgage. These people would now be hit with huge charges if they were to attempt to move to a cheaper variable mortgage as a means to reduce their costs now that the mortgage interest relief has been taken from them.

But even then, I don’t believe there are too many people that would be in this situation. As of today, there are over 10 mortgage providers in the country at the moment, and that I can find, only 3 of them provide fixed rate mortgages of more than 5 years – 10 years at EBS, AIB and permanentTSB.

I’m waiting for information from the Financial Regulator, the CSO and the IBF to see how many people did take out 10 year fixed rate mortgages in 2002, 2003 and 2004. I’m willing to hazard a guess that there aren’t that many people in that category.

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“People with variable rate mortgages have no right to rate cuts”

I’m a big fan of the writings of Karl Deeter on the Irish Mortgage Brokers Blog. His coverage of the many differing finance topics of the day are very readable and most of the time make somewhat complex issues quite understandable.

This blog post, in light of other statements we’re hearing in the media recently, gave a very understandable reasoning for why banks aren’t (or shouldn’t) pass on recent interest rate reductions by the ECB:

People with variable rate mortgages have no right to rate cuts, variable rates are determined by individual banks and while AIB or BOI might be justifiably forced to pass on the rate cuts any bank that was not directly bailed out should be running a prudent business and if rate cuts are not on the table of prudent business then don’t do it.

This post was in response to statements from the Ulster Bank and First Active that they wouldn’t not be passing on the most recent interest rate cuts.

You should read the full post here as it goes on to expose the fallacy of the statement from both banks that they were doing this in favour of their savers rather than mortgage holders since their saving accounts don’t rate in the top 5 of any category.

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My bank wants to charge me to leave fixed rate mortgage

This e-mail came through to the ValueIreland.com inbox recently – pretty topical given some of the recent posts. I think it’s a common question for many people at the moment given the drastic drop in interest rates.

Hi Do not know whether you can help. We have a fixed rate mortgage with KBCHomeloans. It is a three year fixed rate due to last until july 2010. I made enquiries about changing to a variable rate with a lower rate of interest. I was told it would cost 9,000 to change over to a variable rate.Is this correct? We have an outstanding balance of approx 300,000 mortgage loan with them.

It is standard practice for banks to charge if you try to break from a fixed rate mortgage early. You’ve signed a contract with them to pay them a certain amount of money over a certain period of time and in exchange, they gave you a mortgages.

So, trying to change to a variable rate mortgage means you’re breaking the terms of the signed contract and therefore, the bank needs to recoup the money they’d lose by letting you change to a variable rate mortgage.

The first thing to check is the details of the original mortgage contract you’ve signed to see what the charge was detailed as in there.

If it’s €9,000 or some fixed percentage, then you’re pretty much tied in and have to pay the asking amount. Alternatively, if it’s not specifically defined what the charge should be, then you might have a better chance negotiating the cancellation fee and getting the €9000 cut to a lesser amount.

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